Indiabulls Housing Finance (IBHFL) is concentrating on the mortgage business, says Gagan Banga, MD & CEO of the company.
The Indiabulls group completed the reverse merger between Indiabulls Financial Services and IBHFL, which was initiated in early 2012. In today's (Tuesday) trade there was a re-listing of IBHFL.
The management is clearly focused on the home finance opportunity. "That is now the bulk of the lending we do and it would continue to remain the major focus of the organization. The housing finance company license is far more appropriate for us," Bangs told CNBC-TV18.
Eventually, Bangs says, the company would want to migrate and progress to being a bank.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Can you tell us now that the reverse merger process is complete what could the benefits be for IBHFL in terms of your profitability and in general the profile?
A: The Company over the last few years has been trying to build concentration around the mortgage business. It took us around three-four years to cross the technical hurdles which are required to be a housing finance company in terms of concentration of housing finance assets. Those hurdles were crossed in early 2012, which is when the merger process was initiated.
As a housing finance company it is just a more appropriate license to being a Non-bank financial company (NBFC). As an NBFC one is often thought of as a company which can do multiple asset classes, can take on new asset classes. As management we are clearly focused that we want to pursue the home finance opportunity. That is now the bulk of the lending that we do and would continue to remain the major focus of the organization. The housing finance company license is far more appropriate for us.
Q: Under what entities the bank license is being applied for and is this restructuring a part of the process to eventually get a banking license?
A: The bank license has been applied as a two step down subsidiary to the IBHFL Company itself. So, there is going to be 100 percent subsidiary which would be the non operative holding company and that would then eventually promote the banks.
So, indirectly it is a subsidiary of IBHFL itself. This restructuring or the reverse merger process as we call it was announced and initiated much prior to the guidelines also being announced by Reserve Bank of India (RBI). So, you have to look at it from this perspective that IBHFL is extremely confident of pursuing the housing finance opportunity and growing for the next few years at a pace of 20-25 percent.
The banking license is an interesting license and a bank is obviously a far more complex and a larger franchise to a housing finance company. In an ideal world after a few years we would want to migrate and progress to being a bank but as such we are just a housing finance company. We are extremely confident and focused that we should be able to grow by 20-25 percent for the next many years. If a bank comes around it is very well otherwise we continue to do what we are doing.
Q: Can you just give us a mix in terms of your borrowing cost going ahead, how much would you be depending on wholesale borrowings and now that the RBI has tightened the measures and wholesale funds might go up how do you think it would impact IBHFL?
A: I believe and also as is evident in the rates Monday evening moves have largely been targeted to impact the short-term rates. Therefore reduce or to re-initiate the arbitrage which existed for foreign institutional investors to continue to invest in Indian government and corporate debt paper. That move has clearly re-initiated that arbitrage but it is only on the shorter end of the curve that the impact is there.
We have been quite focused so as to be able to match our asset liability, we have minimized our reliance on short-term funds. So, commercial paper which is a short-term fund is only about 8 percent of our overall borrowings, close to about 5 percent of our balance sheet. With whatever the RBI has done and the residual impact of that as per my estimates, the cost of fund impact is going to be in the range of 3-5 bps therefore extremely minimal.
The more important thing for an organization like ours is if the RBI to defend the rupee is to tomorrow tighten liquidity further, do we have enough ammunition in terms of liquidity to defend our business and to continue to grow in a tight liquidity situation also. As an organization we have preempted this move and have maintained for the last six years liquidity to the extent of 20 percent of our total assets and that as a policy decision at our end is surely helping us at such a time. If liquidity is to tighten further it may well become even a competitive advantage for us.
Q: On the home loans that you were talking about what kind of disbursement growth do you think you can do in FY14 and also what kind of net interest margins (NIMs) do you think you can hold? You closed Q1 with about 5 percent NIMs, will it be stable around those levels?
A: For an organization as marginally geared as us we are only geared about five times. The more relevant number is the spread, so we have been maintaining spreads in the range of Rs 330-350 bps. I am fairly confident that that spread maintenance of Rs 330-350 bps would continue in a very stable manner.
Overall be it any operating or financial parameter the growth guidance, which we have given of 20-25 percent could surely get met. So, now this is an organization which has become extremely predictable as the very stable growth over the last 15-16 quarters indicate. We will continue to grow at about 25 percent.